The regulator started developing the new guidance for crypto tokens back in November 2018 with the purpose of enabling token issuers easily determine whether or not their cryptocurrency would qualify as a security offering. The guidance includes examples of both networks and tokens that fall under securities laws, as well as a project which does not.
Before evaluating whether or not their offerings qualify as securities, token issuers must consider factors such as: an expectation of profit, whether a single or at least central group of entities are responsible for specific tasks within the network, and whether a group is creating or supporting a market for a digital asset.
Referencing the Howey test, a test created by the Supreme Court for determining whether certain transactions qualify as “investment contracts”, the guidance highlights “reliance on the efforts of others,” reasonable expectation of profits, how developed the network is, what the tokens’ use cases might be, whether there is a correlation between a token’s purchase price and its market price and a host of other factors.
The guidance also details how issuers should look at tokens previously sold, both in evaluating whether they should have been registered as securities, as well as whether “a digital asset previously sold as a security should be re-evaluated”, according to CoinDesk.
While the guidance discusses securities classifications, other questions remain unanswered. In particular, the SEC has yet to provide clarity around the idea of custody for broker-dealers holding cryptocurrencies, the online publication continues.
The key issue around custody comes from the fact that while broker-dealers can easily verify that cryptocurrencies in any given wallet belong to them, it is harder to prove that no one else has access to the holdings.
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